New Signals of Failure

The Reserve Bank of India has once again hinted at hiking the key interest rates. There could not be anything more surprising than this because the central bank is ready to squeeze liquidity further despite its own submission that its tight monetary policy has reduced investment and demand, which in turn has affected several projects. The assessment report of the RBI, a day ahead of half-yearly review of monetary policy, is disappointing not only for the common man, but also mirrors the fact that the government has washed off its hands from responsibilities. If the RBI raises interest rates, it would be the 13th instance of its kind after March 2010. All the assessments point at negative returns for such measures. The advisers of the Planning Commission are of the view that rate hike would not have any bearing on inflation. If this method of RBI has failed to bring relief to common people in the past and instead impacted growth rate, then what is relevance behind the Central Bank’s decision to hike rates once again. Keeping the assessment of policy makers on the issue aside, it doesn’t get worse than this for the common man that he or she is going to receive another jolt of price rise head of Diwali. The government’s failure to explain the reason behind the sky-rocketing prices is more worrisome than its inability to curtail inflation. The government is always ready with few excuses whenever it is confronted with the issue of inflation. Now, it is selling the argument that the latest spike in price rise is due to devaluation of Rupee vis-à-vis Dollar. There might be substance in the assertion, but one must remember that prices were rising even if the value of Rupee stood stronger.

Toeing the government’s line, the RBI also starts making never-to-be-fulfilled announcements whenever it faces tough questions on the runaway inflation. If the RBI is to be believed, the changes in the Minimum Support Price (MSP) for foodgrains have led to price rise of food items. There is no reason to believe this analysis because the RBI often comes up with new explanations for inflation. The way RBI has lowered the growth estimates for the current fiscal to be below 8 percent, it only substantiates the apprehension that the Central government is incapable of curbing inflation and increasing economic growth as well. There are ample reasons to believe that the government is deliberately not explaining the basic reasons behind the inflation remaining unchecked. The basic reason behind inflation is the failure to bridge the demand-supply mismatch. A lack of economic reforms has only added to the problems. Now, it becomes evident that while the Central government is deliberately sitting on the essential economic reforms, it is citing the global economic scenario behind the downturn in the Indian economy.